[this article will be published in an upcoming issue of SKRINE’s Legal Insights]

By Lee Shih and Khong Siong Sie

INTRODUCTION

The Companies Act 2016 (“Act”) has come into force on 31 January 2017, except for the provisions on registration of company secretaries and corporate rescue. This article will highlight five tax implications on companies as a result of the Act.

(1) SME OR NON-SME

The Act’s introduction of no-par value shares may have an impact on the preferential tax rates enjoyed by certain small and medium enterprises (“SMEs”).

Resident SMEs with a paid-up capital in respect of ordinary shares of RM2.5 million and below at the beginning of the basis period for a year of assessment are taxed at a preferential tax rate of 18% (instead of the normal rate of 24%) for the first RM500,000 of its chargeable income. Such SMEs must not be part of a group of companies where any of their related companies have a paid-up capital of more than RM2.5 million.

With the introduction of no-par value shares, the moneys in the share premium account and capital redemption reserve become part of the company’s share capital, subject to a transitional period of 24 months. This merging of share premium and capital redemption reserve may result in some SMEs losing the preferential tax rate once their merged share capital in respect of ordinary shares exceeds RM2.5 million.

Losing such preferential tax rate may translate into liability for an additional tax of up to RM30,000.00. Further, there may be a loss of other benefits such as the unlimited claim on special allowances for small value assets and exemption from having to provide an estimate of tax payable for the first two years of operations. Continue reading →